Photo: James Bombales
It’s become a common refrain in Canadian housing market reports published over the last two weeks: The national market, along with many of the local markets that comprise it, were set up for a strong year that would build upon the momentum established in 2019.
And then the coronavirus spread accelerated beyond the expectations of most people who don’t possess significant expertise around infectious diseases. This has resulted in housing projections being reevaluated, reports rewritten and experts asking for patience as they assess the impact to the market and broader economy over the next few weeks.
Real estate data tracker Altus Group had its quarterly Canadian home construction report ready to publish as of two weeks ago and even ensured the requisite coronavirus-influenced projections were included. But two weeks proved to be too long a timeline for the report to continue to be relevant for the point at which we find ourselves today.
Altus Group opted to publish its report with a newly added and lengthy introduction that notes that the data primarily tracking where Canadian home construction activity was heading for the year is still useful to share.
“As we go to press, the depth and duration of the economic disruption remain very uncertain,” wrote Patricia Arsenault, the editor of Altus Group’s Housing Report. While she noted in the recently penned introduction that the Canadian housing market has a potential buffer with the significant cuts to interest rates initiated over the last few weeks, Arsenault said more mortgage rate declines would be required to “help offset the current economic shocks on housing starts.”
“So what might we see for Canadian housing starts this year and next? The current turmoil makes it too early to provide ‘best estimates’ but we have prepared a few initial ‘what if’ scenarios,” wrote Arsenault.
According to Arsenault, the Altus Group team will aim to provide a more concrete “best estimates” projection for Canadian housing starts by early May.
In the meantime, the three scenarios outlined are delineated by the severity of the demand and supply disruption caused by the coronavirus pandemic.
The worst case scenario outlined in the report “assumes more serious supply constraints in 2020, and more prolonged demand impacts. It would be more in line with the degree of adjustment during the global financial crisis in the latter 2000s.” In this scenario, housing starts in Canada would fall to approximately 150,000 units over 2020, a 28 percent decline from 2019.
On the opposite end, a scenario with “minimal” disruption to supply and demand. According to Altus Group, this scenario “acknowledges that housing starts in 2020 would, other things being equal, largely reflect sales – “demand” ‐ that has already occurred, given the limited extent of speculative building and inherent sales to start lags. But it also assumes that the construction industry is only slightly impacted by labour and/or material shortages or full site shutdowns.”
With only minimal disruption, Altus Group estimates that Canadian homebuilders would begin work on 200,000 units of housing over the year. This would be a much smaller decrease over 2019’s total, though it would also still fall short of the “pre-pandemic base case” that Altus developed ahead of the outbreak taking hold.
Another important point contained in Arsenault’s introduction is her team’s skepticism over the claim that the post-pandemic rebound in homebuilding will be comparable to that experienced following the 2003 SARS outbreak.
“SARS was a very localized situation in Canada, primarily concentrated in Toronto, and with far less impacts to the broader economy. Moreover, housing starts had just started to ramp up, after a very slow decade in the 1990s,” she wrote.
